Federal Courts -- Diversity Jurisdiction

7/29/2019 Federal Courts -- Diversity Jurisdiction

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Boston College Law Review

Volume 18Issue 5Number 5

Article 5

6-1-1977

Federal Courts -- Diversity Jurisdiction -- Vaughanv. Southern Railway Co.

Tomas A. Murphy Jr

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Recommended CitationTomas A. Murphy Jr, Federal Courts -- Diversity Jurisdiction -- Vaughan v. Southern Railway Co., 18B.C.L. Rev. 975 (1977), hp://lawdigitalcommons.bc.edu/bclr/vol18/iss5/5
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NOTES

CONCLUSIONThe fundamental issue before the court in Child was simplywhether dedication of a substantial amount of tax-exempt money tocare for a cem etery was sufficiently beneficial to the public to warrantthe governm ental revenue loss which would result. The Child court, byrequiring cemeteries to show that they relieve the burdens of povertyin order to be eligible for estate tax deductible bequests, has reached aconclusion which is neither analytically sound nor adequately sup-ported by law. By failing to recognize that relief of governmentalburdens constitutes the underlying rationale for granting tax benefitsto charitable organizations, the court imposed an arbitrary "relief of

poverty" requirement on cemetery associations. The preferred ap-proach both under the case law and by analogy to the law of charita-ble trusts would have been to balance the general public benefit, ordegree of relief of governmental burdens against the social disadvan-tage occasioned by the revenue loss associated with allowing the de-ductions.JAMES C. KNOX

Federal CourtsDiversity jurisdictionVaughan v. Southern Rail-way Co.'Eldon Swain, a resident of Virginia, was killed in North C arolinawhen struck by a train operated by Southern Railway, a Virginia cor-poration. 2 The decedent's mother, Marie Swain, also a citizen of Vir-ginia, qualified under the law of that state as administratrix of theSwain estate for the purposes of bringing suit against Southern Rail-way for wrongful death. 4 It was determined that the most convenientplace for trial would be the state of North Carolina, where the acci-dent occurred and where all potential witnesses resided. 5 The law ofthat state, however, required the appointment of a North Carolinaresident as ancillary administrator in wrongful death actions. 8 The

' 542 F.2d 641 (4th Cir. 1976).Id. at 642.

3 VA, CODE 64,1-116 (1973).' 542 F.2d at 642. There were no assets in the Swain estate other than the

wrongful death action. Id .5 Id.Id at 642-43. N.C. GEN. STAT. 28-8 (1966) provides: "The clerk shall not issue

letters of administration or letters testamentary to any person who, at the time of ap-pearing to qualify ... (2) Is a nonresident of this State ...." (fur current version ofprovision see N.C. GEN. STAT. 28A-4-2 (Supp. 1975) ). N.C. GEN. STAT. 28-173 (1966)provides: When the death of a person is caused by a wrongful act, neglect or

default of another, such as would, if the injured party had lived, have enti-tled him to an action for damages therefore, the person or corporationthat would have been so liable, . shall be liable to an action for damages,to be brought by the executor, administrator, or collector of' the decedent;979


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plaintiff, Charles Vaughan, a North Carolina attorney, was thereforeappointed resident ancillary administrator of the Swain estate for thepurpose of bringing the wrongful death action.'The action was brought in the United States District Court forthe Eastern District of North Carolina under the diversity jurisdictionof the federal courts. Subsequently, the defendant filed a motion todismiss the action for lack of jurisdiction. 8 The motion was directed tothe restrictive standards of 28 U.S.C. 1359 which proscribes thejoinder of parties for the purpose of creating federal jurisdiction. 8The district court, relying upon decisions of the Fourth Circuit whichfound section 1359 to prohibit the manufacture of diversity jurisdic-tion through the appointment of an administrator to prosecute awrongful death claim," held that Vaughan's appointment was madefor the purpose of invoking the power of the federal courts, and assuch, constituted an improper creation of federal jurisdiction." Withno diversity of citizenship existing between the beneficiary and the de-fendant as required for federal jurisdiction by 28 U.S.C. 1332(a)"the district court dismissed the action.' 3On review, the United States Court of Appeals for the FourthCircuit affirmed the decision below and HELD: because the ben-eficiary was the real party in interest to the wrongful death action, hercitizenship would be determinative of federal diversity jurisdiction."Accordingly, since the beneficiary and the defendant were both citi-zens of Virginia, there was no diversity of citizenship upon which to

and this notwithstanding the death .... (emphasis supplied)(for current version of provision see N.C. GEN. STAT. 28A-18-2 (Supp. 1975) ).

1 542 F.2d at 642-43.,4 Id. at 643.9 28 U.S.C. 1359 (1970). The statute provides: "A district court shall not have

jurisdiction of a civil action in which any party, by assignment or otherwise, has beenimproperly or collusively made or joined to invoke the jurisdiction of such court." Id.See text at notes 49-63 infra for a discussion of the legislative history of the statute andof the judicial construction given to it.

10 These decisions were: Bishop v. Hendricks, 495 F.2d 289 (4th Cir. 1974) (theappointment of a citizen of Georgia to bring a wrongful death action on behalf of a citi-zen of South Carolina in South Carolina was held to be for the sole purpose of creatingfederal diversity jurisdiction and thus in violation of section 1359); Miller v. Perry, 456F.2d 63 (4th Cir. 1972) (under a North Carolina statute requiring the appointment of aresident administrator in wrongful death actions, the citizenship of the beneficiary washeld to be determinative of federal diversity jurisdiction); Lester v. McFaddon, 415 F.2d1101 (4th Cir. 1969) (the appointment of a citizen of Georgia to bring a wrongful deathaction on behalf of a citizen of South Carolina in South Carolina was held to be for thesole purpose of creating federal diversity jurisdiction and thus in violation of section1359).

" 542 F.2d at 643.12 28 U.S.C. 1332(a) (1970). The statute in part provides: "(a) The district

courts shall have original jurisdiction of all civil actions where the matter in controversyexceeds the sum or value of $10,000, exclusive of interest and costs, and is between - (1)citizens of different states; ...." Id. See text at notes 21-27 infra for a discussion of thehistorical basis of diversity jurisdiction.

13 542 F.2d at 643.14id .

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justify the exercise of such jurisdiction and the controversy more pro-perly belonged in the state courts of either Virginia or NorthCarolina. 1 5In arriving at this determination, the court of appeats based itsholding upon a trilogy of decisons which addressed the issue of theimproper creation of diversity jurisdiction through the appointmentof an administrator."' These decisions collectively yielded a standardof review that examined both the substantive stake of the adminis-trator and the purpose of his appointment in evaluating an allegedimproper creation of'federal jurisdiction." While recognizing that theNorth Carolina action had been initiated in good faith, the court ofappeals nonetheless concluded that the apparent diversity of citizen-ship was pretensive because the chosen administrator had no stake inthe outcome of the controversy."' As a result, the court of appealsconcluded that while Vaughan's appointment was not solely for thepurpose of creating diversity of citizenship, the subsequent attempt toput it to that use by bringing the action in federal court would be re-garded presumptively as the substantial equivalent."' With no genuinediversity of citizenship existing between the beneficiary and the de-fendant, the Fourth Circuit ruled that the district court lacked juris-diction to entertain the action. 2 0The basic issue presented to the Fourth Circuit in Vaughan v.Southern Railway Co. was whether the citizenship of the resident ad-ministrator or the citizenship of the beneficiary would control for

"Id. at 644.'" Id. at 643. These decisions were Bishop v. Hendricks, 495 F.2d 289 (4th Cir.1974) (see text at notes 111-128 infra), Miller v. Perry, 456 F.2d 63 (4th Cir. 1972) (seetext at notes 86-110 infra), and Lester v. McFaddon, 415 F.2d 1101 (4th Cir. 1969) (seetext at notes 66.81 infra).

' 7 542 F.2d at 644.ul

Id ."d. The dissent written by Circuit judge Butzner encompassed several of thecriticisms that this casenote will direct at the ruling of the Fourth Circuit. The dissentframed the issue in the case as being whose citizenshipthat of the Fiduciary or that ofthe beneficiarywould be considered in determining diversity jurisdiction. Id. at 645.The dissent then acknowledged that federal law had traditionally used the citizenship ofthe administrator in determining diversity of citizenship. Id. Although the dissentpointed to two exceptions to this rule, it found that neither exception applied here. Id.The first exception, embodied in the proscription of 28 U.S.C. 1359, was not applica-ble as the valid and substantial reasons, supporting the appointment, satisfied the re-quirements of section 1359. Id. at 646. The specific application of the statute by themajority was criticized because it dispensed with the necessity of proving collusion orimpropriety in a violation. As such, the majority created a per se rule to deny jurisdic-tion by using the citizenship of the beneficiary to determine diversity jurisdiction. Id .The second exception, embodied in the doctrines of the supremacy clause, was not pre-sent in the case because the state statute requiring the appointment of a resident ad-ministrator did not offend the supremacy clause by defeating federal jurisdiction overthe controversy. Id.; see text at notes 90-94 infra. Since the dissent viewed neither ex-ception as being applicable, the traditional rule for the determination of diversity ofcitizenship arguably remained controlling. 542 F.2d at 645. Where these discussions andarguments are incorporated into this casenote they will be cited to the dissenting opin-ion by an appropriate footnote. 977


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purposes of creating federal diversity jurisdiction over the wrongfuldeath action. In resolving this issue, the court of appeals' task ap-peared to be clear: the court sought to formulate a rule of decisionconcerning the appointment of an administrator to create diversityjurisdiction that would be consistent both with precedent and with thepolicy of jurisdictional statutes. As a result of these efforts, however,the Vaughan court so expanded and manipulated the controllingstatutory standard of section 1359 as to render it largely superfluous.In order to place the Vaughan decision in its proper context, thiscasenote will first consider the purpose of diversity jurisdiction andthe standards previously imposed under the pertinent jurisdictionalstatutes. It will then consider and analyze the Fourth Circuit's trilogyof diversity jurisdiction decisions preceding Vaughan. Next, the notewill analyze and criticize the approach taken by the Vaughan court. Fi-nally, this casenote will examine the most viable solution to the juris-dictional issue in controversy and will conclude that the reasoning andresult of the Fourth Circuit is both inadequate and erroneous as itmisapplies existing precedent and statutes.1.BACKGROUND: DIVERSITY JURISDICTION AND WRONGFUL DEATH

ACTIONSThe federal courts are, of course, courts of limited jurisdiction, 2 '

constitutionally empowered to hear cases "between Citizens of dif-ferent States." 2 2 Congress has defined this diversity of citizenshipjurisdiction in 28 U.S.C. 1332(a), which provides:(a) the district courts shall have original jurisdiction of allcivil action where the matter in controversy exceeds thesum or value of $10,000, exclusive of interest and costs,and is between(1) citizens of different States; .... 2 3

As constitutionally and statutorily defined diversity jurisdiction isgrounded in notions of federalism, its basic purpose being to provideout-of-state litigants with a forum free from local prejudices. 2 4 Inorder to guard against unjustified federal infringements upon statejudicial authority, however, the federal courts have created a pre-sumption in diversity cases that the action is beyond the jurisdiction of2 'Kline v. Burke Const. Co., 260 U.S. 226, 233-34 (1922); Gilchrist v. Strong,

299 F. Supp. 804, 807 (W.I./ Okla. 1969); see 6 C.A. WRIGHT & A. MILLER, FEDERALPRACTICE & PROCEDURE 1557 at 717 (1971) [hereinafter cited as WRIGHT & MILLER].

22 U.S. CONST. art., III, 2." 28 U.S.C. 1332(a) (1970)." Lumberman's Mm. Gas. Co. v. Elbert, 348 U.S. 48, 54 (1954) (Frankfurter, J.,

concurring). As Justice Frankfurter explained,The stuff of diversity jurisdiction is state litigation. The availability

of federal tribunals for controversies concerning matters which in them-selves are outside federal power and exclusively within state authority, isthe essence of a jurisdiction solely resting on the fact that a plaintiff and adefendant are citizens of different States. The power of Congress to con-

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the federal courts," and that statutes conferring such jurisdiction inderogation of the power of state courts are to be strictly construed."The principle underlying this presumption is that primarily local con-troversies should be tried in the appropriate state forum wheneverprejudice to any party with a substantial interest in the litigation is notthreatened. 2 7Rule 1 7(a) of the Federal Rules of Civil Procedure requires thatevery action he prosecuted in the name of the real party in interest. 2 8Accordingly, in deciding whether diversity of citizenship exists, theblack-letter rule is that the citizenship of the real party in interest isdeterminative." The definition of real party in interest under Rule 17(a) is a question of federal procedure, and thus a matter of federallaw." However, under this federal definition, the focus of any inquiryinto the real party in interest must he on the party legally entitled toprosecute the claim under the substantive law that the federal courtwill apply in the case;"' "the party who, by the substantive law, pos-sesses the right sought to be enforced, and not necessarily the personwho will ultimately benefit. from the recovery." 3 2 As diversity actionslitigate questions of state law," the relevant substantive law to be con-sulted and applied in regards to the real party in interest must bestate law. 3 4 Therefore, while the party legally entitled under state lawto enforce the substantive right and the holder of the beneficial in -

fer such jurisdiction was based on the desire of the Framers to assureout-of-state litigants courts free from susceptibility to potential local bias.Id. See also Gilchrist v. Strong, 299 F. Supp. 804, 807 (W.D. Okla. 1969); WRIGHT&

MILLER supra note 21, 1556 at 711; but we Friendly, The Historic Basis y Diversity Juris-diction, 41 HARV. 1,. REV. 483, 487-99 (1928).

" Lehigh Mining & Mfg. Co. v. Kelly, 160 U.S. 327, 336-37 (1895); Fifty As-sociates v. Prudential Ins, Co. of America, 446 F.2d 1187, 1190 (9th Cir. 1970);McSparran v. Weist, 402 F. 2d 867, 876 (3d Cir. 1968).

" Indianapolis v. Chase Nat'l Bank, 314 U.S. 63, 76-77 (1941); Healy v. Ratta,292 U.S. 263, 270 (1934); Gilchrist v. Strong, 299 F. Supp. 804, 807 (W.D. Okla. 1969).27 WRIGHT& MILLER, supra note 21, 1556 at 711.ssFiln. R. Civ, P. 17(a). The Rule provides in pertinent part: "(a) Real Party in

Interest. Every action shall be prosecuted in the name of the real party in interest. Anexecutor, administrator ... may sue in his own name without joining with him the partyfor whose benefit the action is brought; ...." /d.

23 WRIGHT & MILLER, supra note 21, 1556 at 710." Hanna v. Plumer, 380 U.S. 460, 469-70 (1965)." Peter v. Lines, 275 F.2d 919, 928 (9th Cir. 1960); Armour Pharmaceutical Co.

v. Home Ins. Co., 60 F.R.D. 592, 594 (N.D. III. 1973); Race v. Hay, 28 F.R.D. 354, 355(N.D. Ind. 1961); 3A MOORE, FEDERAL. PRACTICE 1 17.02 at 53 (2d ed. 1974); C.A.WRIGHT, HANDBOOK OF THE LAW OF FEDERAL COURTS, 70 at 293 (2d ed. 1970). See ,Jettv. Zink, 362 F.2d 723, 726 (5th Cir. 1966); Hertz v. Record Publishing Co. of Erie, 219F.2d 397, 399, 400 (3d Cir. 1955), cert. denied, 349 U.S, 912 (1955); 3A MOORE, FEDERALPRACTICE 1 17.07 at 221-25 (2d ed. 1974); Comment, 47 N.Y.U,L. REV. 801, 805.06(1972).

32 C.A. WRIGHT, HANDBOOK OF THE LAW OF FEDERAL COURTS, 70 at 293 (2d ed .1970).33 Lumberman's Mut. Cas. Co. v. Elbert, 348 U.S. 48, 54 (1954). See text at notes

21-27 supra.34 Erie v. Tompkins, 304 U.S. 64, 78, 94 (1938).

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terest in the action are often the same, it is the former that charac-terizes the real party in interest for purposes of prosecuting any claimin the diversity jurisdiction of the federal courts. As an example ofthis possible dichotomy of interests, in North Carolina the beneficiaryof a wrongful death action obviously holds the beneficial interest, butthe substantive legal right to be enforced is given by statute to theadministra tor. 3 5Reflecting these basic principles, Rule 17(a) specifies that ad-ministrators are parties who may sue in their own names without join-ing with them the party for whose benefit the action is brought. 3 6 Ac-cordingly, the traditional black-letter rule in actions involving an ap-pointed administrator is that the citizenship of the administrator is de-terminative for purposes of diversity jurisdiction."Addressing the particular relevancy of this rule to actions forwrongful death the Supreme Court, in Mecom v. Fitzsimmons DrillingCo.," held that under a statute granting a right to recover for wrong-ful death, the administrator was the real party in interest. As such, thecitizenship of the administrator, rather than that of the ben-eficiary,was determinative of federal diversity jurisdiction." In Mecom,the Court framed its holding in language descriptive of the adminis-trator's duties under the facts and the requirements of state law,"thereby suggesting the existence of some minimal requirement of in-terest in the suit for the application of the decision's black-letter rule.However, in Mecom the administrator had an extremely tenuous andessentially artificial role in the action," and thus could not be consid-ered anything more than a straw party designed to defeat diversityjurisdiction.'" Even so, the Court found that the motive behind theappointment" was immaterial, 4 4 and based its holding upon a re-luctance to attack collaterally the lawful decree of the state probatecourt which appointed the administrator.'"

35 N.C. GEN. STAT. 28-173 (1966) (for current version of provision see N.C.GEN. STAT. 28A-18-2 (Supp. 1975) ). For text of 28-173 see note 6 supra. See Homeyv. Meredith Swimming Pool Co., 267 N.C. 521, 523, 148 S.E.2d 554, 556 (1966).

36 FED. R. Cm P. 17(a). See note 28 supra.37 Childress v. Emory, 21 U.S. (8 Wheat.) 642, 669 (1823); see Chappedelaine v.Dechenaux, 8 U.S. (4 Cranch) 306, 308 (1808).38 284 U.S. 183 (1931).35 1d. at 186.'" Id. These duties under state law induded the responsibility for the conduct ofthe suit, responsibility for distribution of its proceeds under the statute, and liabilityupon his official bond for failure in his fiduciary duty. Id ." Id, at 188. In Mecom, the administrator did not know the decedent or the be-neficiary, consented to the appointment as a favor to the beneficiaries' attorney, did notsign his own bond, never appeared in Oklahoma, and immediately named the be-neficiary as his agent in Oklahoma. Id .42 Id.43 That motive involved the appointment of an administrator from the de-fendant's state to prevent removal to the federal district court. Id."Id. at 189.45 Id .

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Essentially, Mecom stated the accepted rule upon which diversityof citizenship was to be determined in wrongful death actions."Nevertheless, the Mecom rule permitted the appointment. of rep-resentatives who were chosen deliberately to defeat or to create di-versity jurisdiction. 4 7 Therefore, to the extent that it permitted accessto the federal courts through the mere pretense of diversity of citizen-ship, the Mecom rule ran counter to the general policy of viewing thefederal courts as tribunals of limited jurisdiction whose subject matterprinciples should be applied with restraint." Thus, in light of the con-stitutional and congressional policy of limiting the jurisdiction of thefederal judiciary, the Mecom rule could not be allowed to stand as theunqualified standard for diversity jurisdiction.Congress addressed itself to the problem of the deliberate crea-tion of diversity jurisdiction in section 1359 of Title 28 of the UnitedStates Code. That section provides: "A district court shall not havejurisdiction of a civil action in which any party, by assignment orotherwise, has been improperly or collusively made or joined to in-voke the jurisdiction of such court." 4 1 The Reviser's Note describedthe new statute's purpose to be the prevention of "the manufacture ofFederal juriscliction." 5 0 Initially, however, the federal courts failed togive a strict construction to section 1359 in accordance with this statedpurpose. For example, following the passage of section 1359, the pre-vailing view among lower federal courts was that the appointment of a

fiduciary, even if done expressly to create diversity jurisdiction, didnot fall within the scope of the statute.'" The reasoning under thisview held that the citizenship of the administrator controlled the de-termination of diversity jurisdiction as "there was no impropriety orirregularity involved in the perfectly valid proceeding in the state" See WRIGHT & MILLER, supra note 21, 1556 at 711-12.47 See id. 1556 at 712-13."See id. 1557 at 717. See text at notes 25-26 supra.4" .S.C. 1359 (1970). Section 1359 has existed in its present form since the

1948 Revision of the judicial Code. Kramer v. Caribbean Mills, Inc., 394 U.S. 823, 825(1969). Prior to this revision the creation of diversity jurisdiction was governed by twostatutes. The revision repealed 11 of the Judiciary Act of 1789. I Stat.79 (1789). Thatprovision had read: "No district court shall have cognizance of any suit to recoverupon any promissory note or other chose in action in favor of any assignee, ... unlesssuch suit might have been prosecuted in such court if no assignment had beenmade." The revision then amended ch. 137, 5 of the Act of March 3, 1875. 18 Stat.470 (1875). That provision had read:

[The district court will dismiss] at any time ... [when] such suit does notreally and substantially involve a dispute or controversy properly withinthe jurisdiction of said circuit court, or that the parties to said suit havebeen improperly or collusively made or joined, either as plaintiffs or de-fendants, for the purpose of creating a case cognizable or removable ....

This repeal and amendment produced the present section 1359. Kramer, 394 U.S. at825-26." Kramer,394 U.S. at 826.

" Corabi v. Auto Racing, Inc., 264 F.2d 784, 786-87 (3d Cir. 1959) (overruled byMcSparran v, Weist, 402 F.2(1 867 (3d Cir. 1968); see WRIGHT &Mn.i.Ettsupra note 21, 1557 at 717.

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court for the appointment of the out-of-state fiduciary." 5 2 This "valid-ity under state law" standard permitted no inquiry into the motive be-hind the appointment, 5 3 and the terms "collusive" and "improper" wereheld to apply only to illegal agreements or understandings between theopposing parties. 5 4This permissive standard under section 1359 was subsequentlyrejected by the Supreme Court in Kramer v. Caribbean Mills, Inc., 5 5 acase involving the assignment of a foreign corporation's contract claimto an American attorney for the admitted purpose of making federaldiversity jurisdiction available." The Court framed the issue in thelanguage of section I 359's prohibition, 5 7 emphasizing its purpose toprevent the manufacture of federal jurisdiction." Recognizing andfocusing upon the obvious purpose of the contrived, but legal transac-tion, Justice Harlan, writing for the majority of the Court, gutted the"validity under state law" argument and stated: "the existence of fed-eral jurisdiction is a matter of federal, not state, law.. .. this very casedemonstrates the ease with which a party may 'manufacture' federaljurisdiction by an assignment which meets the requirements of statelaw."5 " Consequently, the Court held that the assignment to create di-versity jurisdiction was "improperly or collusively made" within themeaning of section 1359." Simply, the agreement at issue in Kramer,whereby the assignee merely provided his name for use in the title ofthe action and agreed to return ninety-five per cent of any recovery tothe assignor," did not in substance-make the assignee the real partyin interest of the contract claim. Therefore, any apparent diversityjurisdiction based upon his citizenship was artificial and created in vio-lation of section 1359.Thus, Kramer, in effect, enunciated a new, stricter standard forthe application of section 1359, one conforming both with the federaljudiciary's role as courts of limited jurisdiction and with the purposeof section 1359 to prevent the "manufacture of Federal jurisdiction."'"However, the Court specifically reserved the question of "whether, in

" McSparran v. Weist, 402 F.2d 867, 872 (3d Cir. 1968). This case overruledCorabi v. Auto Racing, Inc., 264 F.2d 784 (3d Cir. 1959), the representative decision onthe initial construction given to section 1359. McSparran, 402 F.2d at 876.

"Mecam, 284 U.S. at 189; Black & White Taxicab & Transfer Co. v. Brown &Yellow Taxicab &Transfer Co., 276 U.S. 518, 524 (1928).

Corabi v. Auto Racing, Inc., 264 F.2d 784, 788 (3d Cir. 1959)(overruled byMcSparran v. Weist, 402 F.2d 867 (3d Cir. 1968) ): WRIGHT& MILLER supra note 21, {1557 at 719; se e Jansen v. Coos, 302 F.2d 421, 425 (8th Cir. 1962).

"394 U.S. 823 (1969)."Id. at 824, 828.57 Id, at 825. The Court stated that the issue was: "(Wlhether Kramer was 'im-

properly or collusively made' a party 'to invoke the jurisdiction' of the District Court,within the meaning of 28 U.S.C. 1359." Id.

"Id.at 825.26; see note 49 and text at note 50 supra."94 U.S. at 829. at 827.81 1d. at 828."See id at 828-29. 982


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N O T E Scases in which suit is required to be brought by an administrator, amotive to create diversity jurisdiction renders the appointment of anout-of-state representative 'improper' or 'collusive'." 6 3The decision in Kramer, in conjunction with the decision inMecom, formed the legal context for the Fourth Circuit's trilogy andestablished the conceptual battleground upon which the Fourth Cir-cuit struggled in Vaughan v. Southern Railway Co. This context consistsof two separate issues, one addressing the standard for determiningwhether diversity of citizenship exists among the parties under section1332 (a) (the Mecom rule) and the other addressing the standard fordetermining whether there was collusion or impropriety in the crea-tion of that diversity jurisdiction under section 1359 (the Kramer stan-dard). A conceptual conflict appeared whereby the Mecom rule on itsface permitted the precise "collusion/impropriety" in the creation offederal jurisdiction that the Kramer standard was specifically designedto prohibit. The specific jurisdictional directive of section 1359 wasdesigned to limit and to control abuses in the invocation of the gen-eral jurisdictional grant of section 1332(a); to prohibit the manufac-ture of federal diversity jurisdiction." Consequently, it was the FourthCircuit's implicit goal in Vaughan to reconcile the potential conflict be-tween the Mecom rule and the Kramer standard." In so doing, its pre-cise need was to construct a mode of decision that would determine,in a manner consistent with the policy and standard of section 1359,the existence of diversity of citizenship where an administrator is ap-pointed to bring a wrongful death action.

II. THE FOURTH CIRCUIT TRILOGYA. Lester v. McFaddon

The Fourth Circuit first broached the conceptual conflict be-tween the section 1359 standard and the Mecom rule in Lester v.McFaddon." In Lester, lawyers representing a South Carolinian de-cedent's estate secured the appointment of a Georgia lawyer as anadministrator both for the purpose of bringing a wrongful death ac-tion under South Carolina law against a South Carolina citizen andfor the purpose of placing that action within the diversity jurisdictionof the federal courts. 6 7In confronting the issue of the standard to be applied under sec-tion 1359 to determine the propriety of diversity jurisdiction, the Les-ter court enunciated its desire not to "give the statute a reading whichwould frustrate the congressional intention to exclude from the di-versity jurisdiction purely local controversies with no more than a con-

63 1d. at 828 n.9," See note 49 and text at notes 50-62 supra."ee 542 F.2d at 642, 644." 415 F.2d 1101 (4th Cir. 1969).Id. at 1103.

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B O S T O N C O L L E G E IN D U S T R IA L A N D C O M M E R C IA L L A W R E V IE Wtrived interstate appearance."'" Accordingly, the Lester court held thatthe appointment for the purposes of creating apparent diversity ofcitizenship was an improper manufacture of jurisdiction within themeaning of section 1359. 6 1To resolve the issue of the artificial creation of diversity jurisdic-don in suits brought by persona! representatives and to effectuate thecongressional purpose of Section 1359, the Lester court explicitlyadopted the reasoning advanced by the Third Circuit in McSparran v .W eist," which accurately anticipated the Supreme Court's subsequentKramer decision.'" According to the McSparran court, the standard ofreview under section 1359 involved the determination of whether therepresentative was a "nominal party." 7 2 That court reasoned that ifthe representative had no stake in the litigation and was appointedsolely for the purpose of creating diversity jurisdiction, he was not thereal party in interest.'" Relying on McSparran, the Lester court un-dertook a review both of the substantive role of the administrator inthe litigation and of the motive for his appointment. 7 4 As to the sub-stantive role of the administrator, the court determined that there was"no distinction between this situation and that of the assignee which

"Id. at 1104. See note 49 and text at note 50 supra. The court further an-nounced its belief that the South Carolina probate decree was not under collateral at-tack in the federal court as the pertinent issue in the case was a federal question ofjurisdiction, which would not affect the bringing of any suit in a proper state court. 415F.2d at 1105."Id. at 1104.

7 402 F.2d 867 (3d Cir. 1968). McSparran involved the appointment of a non-resident guardian for the conceded purpose of creating diversity jurisdiction in a per-sonal injury suit and held that the appointment offended the directive of section 1359.Id. at 868-76.

" 415 F.2d at 1104. McSparran was decided immediately prior to and in anticipa-tion of the Supreme Court decision in Kramer. Id. at 874 n.20.

'402 F,2d at 870-71."Id. at 874-75. The court reasoned, "Whether in an individual case diversity

jurisdiction is 'manufactured' is, of course, a question of fact. Here 'manufactured' di-versity is conceded, but in other cases where it is not conceded it will be for the districtcourt to make the factual determination." Id. at 876. See generally Groh v. Brooks, 421F.2d 589, 595 (3d Cir. 1970); Ferrara v. Philadelphia Laboratories, Inc., 272 F. Supp.1000, 1007 (D. Vt. 1967). In Groh, the Court delineated a set of factors for determiningwhether or not diversity of citizenship had been artificially created by the appointmentof a personal representative:

(title district court may consider, inter alia, such factors as the identity ofthe representative and his relationship to the party represented; the scopeof the representative's powers and duties; any special capacity or experi-ence which the representative may possess with respect to the purpose ofhis appointment; whether there exists a non-diverse party, such as a par-ent in a suit for injuries to a child, who might more normally be expectedto represent the interests involved; whether those seeking the appointmentof the representative express any particular reasons for selecting an out-of-state person; and whether, apart from the appointment of an out-of-state representative, the suit is one wholly local in nature.

421 F.2d at 595." 415 F.2d at 1104-05.

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N O T E Sthe Supreme Court considered [in Kramer]" 7 5 Accordingly, theadministrator in Lester was found to have no greater authority orduties than the assignee in Kramerm and as such, was judged to haveno stake in the litigation." Consequently, the administrator wastermed a "nominal party" and the diversity jurisdiction based upon hiscitizenship was found to be "... pretensive [ and] improper withinthe meaning of section 1359.' 7 8The Lester court then looked to the motive of the appointment,justifying its inquiry on the basis and purpose of section 1359. 7 Sim-ply, the court described the circumstances of the instant appointmentand concluded that it was "an act as voluntary and deliberate as is thatof an assignor in the Kramer situation." 8 Additionally, the court statedin a footnote that li]t is the lack of a stake in the outcome coupledwith the mot ive to bring into a federal court a local action normally tri-able only in a state court which is the common thread of the casesholding actions collusively or improperly brought.. .Thus, it appears that, following Lester, the conceptual basis uponwhich diversity jurisdiction would be decided was clear: since theMecom rule had never been repudiated by the Supreme Court," wasbased upon years of American judicial tradition,sa and was bolsteredby the procedural dictate of Rule 17(a)," this rule was substantiallyentrenched as the black-letter law for determining the existence of di-versity of citizenship. Kramer, and more directly Lester, added anotherdimension to the analysis, however, by requiring that the strict stan-dard of section 1359 be applied to determine whether or not the ad-ministrator was a "nominal party." In applying that standard, thecourt assessed the totality of the circumstances of the appointment

73 Id. at 1105."Id.at 1103-05. Though, under state law an administrator was required to

maintain the action, any recovery did not become part of the probate assets of theestate. As the estate contained no assets other than the action, administrative dutieswere limited to recovery. Also the administrator was procured by the lawyers handlingthe litigation and was hardly expected to exercise any effective supervision of their con-duct of the litigation. Id.

r Id. at 1103.'" Id. at 1106."Id. at 1104-'05. See text at notes 42-45, 49-54 supra. Indeed, it is difficult to see

how motive could be entirely ignored in ascertaining the purpose for which the re-presentative was selected in view of the language of section 1359. The very wording ofsection 1359 indicates that the "improper" or " collusive" snaking or joining of a party isfatal to the jurisdiction of the district court only if done to "invoke the jurisdiction ofsuch court"i.e. to create diversity of citizenship; the terms "collusive" and "improper"necessarily connote some purpose or motive to collude or to commit an impropriety.

"415 F.2d at 1105 (emphasis supplied). The court may have referred to the mo-tive element so obliquely because the substantive role of the administrator was so highlytransparent under the facts that it excluded any arguably "proper" motive for the ap-pointment other than the invocation of federal jurisdiction.

8Id. at 1106 n.I I (emphasis supplied)." 542 F.2d at 645 (dissenting opinion). See note 20 supra."See text at note 37 supra.81 See text at note 36 supra.

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through a two-pronged evaluation . The court first examined the sub-stantive role of the administrator to see if he was merely a proceduralreal party in interest with no genuine "stake" in the litigation. Addi-tionally, the court examined the motivation of the appointment to seeif it was made "solely for the purpose" of creating diversity jurisdic-tion. A deceptively simple process of decision was thus delineated bythe case law: when an administrator was appointed to bring a wrong-ful death action in the federal court claiming diversity jurisdiction, thecourt would first apply the standard of LesterlMcSparran. If under thatstandard the circumstances of the appointment were found to createartificial and pretensive diversity, the court would look to the citizen-ship of the beneficiary and dismiss if substantive diversity was lack-ing. 8 5 However, if under that standard the appointment passed re-view, then the court would apply the traditional Mecum rule, using thecitizenship of the administrator to determine the existence of diversityof citizenship for federal jurisdictional purposes. In essence, a section1332 (a) rule for the determination of diversity of citizenship wouldbe applied only in accordance with the finding under section 1359.

BMiller v. Perry

The Fourth Circuit severely complicated this process in its deci-sion of Miller v. Perry." In Miller, the fattfer of a Florida youth killedin North Carolina, acting as the administrator of his son's estate,brought suit in the federal district court under the North CarolinaWrongful Death Act." The action was dismissed as the father, a res-ident of Florida, could not qualify as the resident administrator re-quired under North Carolina law. 8 8 The decedent's grandfather, acitizen of North Carolina, was then appointed resident ancillary ad-ministrator, and a second action was brought in the federal districtcourt. This second action was then dismissed for want of diversity be-tween the resident administrator and the North Carolina defendant."On appeal, the Fourth Circuit held that under the particular facts ofthe case the citizenship of the beneficiaries would control for the pur-poses of federal diversity jurisdiction."

85 3A MOORE, FEDERA L PRA cTicE, 1 17.04 at 112-14 (2 d ed. 1974).86 456 F.2d 63 (4th Cir. 1972). For a more extensive discussion of this case seeFourth Circuit Rev iew, 30 WA SH. & LEE L. REV. 247, 283 (1975).87 456 F.2d at 63. See N.C. GEN. STA T. 28-173, quoted at note 6 supra (for cur-rent version of provision see N .C. GEN . STA T. 28A-18.2 (Supp. 1975) ).88 456 F.2d at 64.!" Id. On the basis of these facts, it was clear that the issue presented to the Millercourt dealt solely with the question of the existence of diversity of citizenship under

constitutional and statutory grants; no question under section 1359 was presented sinceNorth Carolina's resident administrator requirement worked in this case to defeat di-versity of citizenship, rather than to create it improperly or collusively. See id. at 64."Id. at 67.

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N O T E SThe Miller court was confronted with a situation where out-of-

state plaintiffs were, in effect, denied a federal forum by state law.This result obtained because the North Carolina requirement of a res-ident administrator transformed the potential diversity action into anaction between a resident administrator and a resident defendant ofnon-diverse citizenship." As such, the statute defeated federal di-versity jurisdiction over any wrongful death action where the estate ofa non-resident decedent brought suit against a resident defendant.Under these facts, the Fourth Circuit determined that if theMecom rule, holding the citizenship of the administrator to be de-terminative of federal diversity jurisdiction, was constitutionally man-dated, then its apparent conflict with the North Carolina statutewould render the state statute invalid under the supremacy clause." 2In essence, the North Carolina statute could be fully recognized andsurvive a constitutional challenge only if the conflicting Mecom rulewas not a "constitutional imperative.""" Accordingly, in affirming thedistrict court, the Fourth Circuit found the Mecom rule to be neitherconstitutionally nor inflexibly the criterion for the ultimate determina-tion of diversity jurisdiction and, therefore, refused to apply theMecom rule to the facts of the case. 9 4Seeking to justify this initial determination that the court wasneither constitutionally nor inflexibly bound by the Mecum rule, theFourth Circuit read Mecom as articulating not only a black-letter rule,but also an implicit standard for application of that rulenamely,"that the personal representative was clothed with such responsibilitiesand authority that he, under federal standards was the real party ininterest." 9 5 To bolster this reading, the court relied upon the series ofdecisions extending from Kramer as authority for a substantive reviewof the circumstances of the appointment. For example, the courtstated that, "[w]e are obliged to read Kramer as injecting a new note ofrealism into the determination of diversity jurisdiction."" This read-ing of Kramer, however, failed to recognize that Kramer's "new note"and its power to examine the substance of the appointment pertainedonly to the section 1359 "substantive rolemotive for the appoint-ment" standard for determining the improper creation of diversityjurisdiction, and not to the determination of the existence of diversityof citizenship which was involved in Mecom. It would appear, then,that the Miller court clearly erred in failing to differentiate between

9 ' Id. at 64 -65 ."2 Id. at 64. See U.S. CoNsT art. VI. "This Constitution, and the Laws of the Un-

ited States which shall be made in Pursuance thereof; and all Treaties made, or whichshall be made, under Authority of the United States, shall be the supreme Law of theLand ...."

' 3 456 F.2d at 65." 4 See id. at 68."Id. at 65.96 1d. at 67.

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BOSTON COLLEGE INDUSTRIAL A ND COMMERCIAL LA W REVIEW

these two separate, though closely related, issues."While the Miller court's basic assessment of the Mecom rule asbeing neither constitutionally nor inflexibly mandated is reasonablydefensible, it nonetheless represented an unnecessarily obscure course

of decision in the case. InMiller, the Fourth Circuit was presentedwith at least three alternate courses of decision: affirming the districtcourt's denial of jurisdiction by strictly following Mecom; reversing thedistrict court by its selected abandonment of the Mecom rule; or re-versing the district court by striking down the North Carolina statuteas unconstitutional." The first course was inadequate as it would havefailed to resolve the supremacy clause issue, and would have allowed astate statutory requirement to deny federal jurisdiction in the case."The second course would have preserved the North Carolina statuteand would have granted jurisdiction in the case, but would havenecessitated an abandonment of the Mecom rule.'" The third course,however, would have resolved the supremacy clause issue and wouldhave equitably granted jurisdiction in the case without the complica-tions of changing jurisdictional rules. As such, this third course ap-pears to have been the simplest and most logical means of resolvingthe controversy. 1 1 While perhaps motivated by notions of federal ju-dicial restraint and prudence,' 2 the Miller court's efforts to preservethe North Carolina statute by manipulating the meaning of the Mecomrule and section 1359 served primarily to excuse the court from theaccepted dictates of the Mecom rule and to thereby justify the genesisof a new jurisdictional standard.Having thus cast the Mecom rule aside, the Miller court formu-

" While the decisions in Kramer, McSparran, and Lester did indeed suggest thatMecom was not inflexible and was subject to section 1359 review, it was misleading andobscuring to declare, as the Fourth Circuit did in Miller, that the analysis of section1359 in those decisions vitiated the Mecom rule even where no section 1359 issue wasinvolved. See id.9" S ee Fourth Circuit Rev iew, 30 WASH. & LEE L. REV, 247, 284-85 (1973)." See text at notes 90-93 supra.I" See text at notes 92-94 supra.ig' See Fourth Circuit Review, 30 WASH. & LEE L. REv. 247, 293-94. This articlestates that only North Carolina, Georgia, Virginia, and West Virginia have such statut-ory requirements in a wrongful death action, so a decision declaring the North Carolinastatute unconstitutional would have had only a very limited effect. Id. at 284-85 & n.20.It appears that the most persuasive argument in declaring the statute unconstitutionalwould have been based on supremacy clause grounds. The Supreme Court has rejecteddirect and indirect interference with federal jurisdiction by state law. Mexican Cent. Ry.v. Pinkney, 149 U.S. 194, 206-07 (1893); Railway Co. v. Whitton's Adm'r, 80 U.S. (13Wall.) 270, 286 (1871). There is also a possible equal protection challenge which assertsthat the requirement of a resident administrator bears no rational relation to the state'sputative interest. See Comm ent, 47 N.Y.U.L. REV. 801, 810 (1972); Miller, 456 F.2d at 65n.5. In fact, North Carolina has recently reformed its laws for the administration of de-

cedent's estates. Section 28-8, the resident administrator requirement, was repealed anda simpler requirement that non-resident administrators appoint a resident agent to facili-tate the service of process was enacted in its place. N.C. GEN. STAT. 28A-4-2(4) (Supp.1975), The Wrongful Death Act itself was reenacted in substantially its previous form.N.C. GEN. STAT. 28A-18-2 (Supp. 1975).102 See 456 F.2d at 65. 988


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NOTES

lated its own rule for determining diversity jurisdiction by summarilyreferring to North Carolina case law which considered the beneficiaryto be the real party in interest. 1 0 3 However, this use of North Carolinalaw was not appropriate for several reasons. 1 " First, the issue pre-sented in Miller was one of federal procedure and jurisdiction andthus an exclusive matter of federal law. 1 0 5 As such, the forum statedefinition of the real party in interest as the possessor of the benefi-cial interest in an action was not applicable because it governed onlythat party's rights in state court.'" If the court had desired to un-dertake a true "real party in interest" analysis in order to formulate asubstitute for what it reasoned to be an inapplicable Mecom rule, itshould have first looked at the federal law for a definition of theterm. Under federal law the real party in interest is defined as theparty, who under the substantive law, possesses the substantive legalright sought to be enforced, rather than the party with the beneficialinterest in the action.'" Under this federal analysis, the proper in=quirt'' in Miller would have focused upon the substantive law, which indiversity cases is state law, to determine the party with the substantivelegal right to be enforced.'" Under the North Carolina wrongfuldeath statute this right was given to the administrator.'" Thus, inhaving selected to excuse itself from the dictates of Mecom and toabandon the accepted federal jurisdictional standard, the Miller courtclearly erred in its reference to North Carolina case law as being ma-terial to the determination of diversity jurisdiction because that statelaw bore no reference to or foundation in the federal concepts of realparty in interest that are traditionally determinative of federal di-versity jurisdiction. Still, the Fourth Circuit chose to advance a new,poorly defined rule for diversity jurisdiction; one that was contrary onits face to the Mecum rule in that the citizenship of the beneficiarywould be determinative of the existence of diversity of citizenship." 0

C. Bishop v. HendricksThe effects of Miller first appeared in Bishop v. Hendricks. 1 1 1Bishop presented a fact situation similar to that in Lester. Decedent,beneficiaries, and defendant were all citizens of South Carolina. A'" Id. The court cited Broacifnot v. Everett, 270 N.C. 429, 154 S.E.2d 522 (1967),a complex case whose issue centered on a statute of limitations and conflict of laws pro-blem, not the real party in interest concept. Id. at 431-32, 154 S.E.2d at 526-27.10 4 Fourth Circuit Review, 30 WASH. &LEE L. Rev. 247, 291 (1973) .1 " See Hanna v. Plumer, 380 U.S. 460, 469-70 (1965).1 " Waw-Fr &MILLER supra note 21, 1544 at 647-48.1"4 .A. WRICDIT, H ANDBOOK OF THE LAW (w FEDERAL COURTS, 70 at 293. Seetext at notes 28-35 supra."'See text at notes 31-34 supra.lo" N.C. GEN. STAT. 28-173 (1966) (for current version of provision see N.C.

GEN. STAT. 28A-18-2 (Stipp. 1975) ). For text of 28-173 sec note 6 .supra." 0 456 F.2d at 68."' 495 F.2d 289 (4th Cir. 1974).9 89


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B O S T O N C O L L E G E IN D U S T R IA L A N D C O M M E R C IA L L A W R E V IE Wcitizen of Georgia, who was related to the beneficiaries by marriage,was appointed administrator to bring a wrongful death action underSouth Carolina law in the federal court." 2 The district court, applyingtheMiller rule, dismissed the action for lack of jurisdiction." 3 TheFourth Circuit subsequently affirmed, finding the administrator to be"a 'straw party' appointed ... solely for the purposes of providing anominal plaintiff for the maintenance of this action"" 4 and holdinghis appointment to be "manifestly an artificial creation of federal di-versity and as such cannot support jurisdiction."" 5

The facts in Bishop presented a situation ideally suited for theconceptual process suggested by Kramer and Lester under section1359. 1 1 6 The decision, however, was couched in terms of the Millerdecision. As such, the court appeared intent upon confusing the ques-tion of review under section 1359 with the separate question of whosecitizenship would be determinative of diversity jurisdiction. Indeed,the court, explicitly rejecting the argument that the scope of Millerkshould be confined to its peculiar facts," 7 framed the case as involv-ing a single issue"the choice between the old purely mechanical or`ritualistic' rule [Mecum] . . . and ... the more recent 'substantive realparty in interest test' W illed."'" Through this confusion of issues,Bishop represented an attempt to reach a result under an applicationof the Miller rule that would reflect the policy and standards of sec-tion 1359.In this attempt, the Bishop court implicitly subsumed the separatesection 1359 "motive" and "stake" standard into the Miller rule."" InBishop, motive was a significant point of contention because the districtcourt had specifically, but without explanation, judged the motives inthe appointment to have been proper.' 2 The Fourth Circuit, how-ever, was not persuaded, and engaged in a more extensive review ofmotive than had been undertaken in previous decisions where the mo-tive of the appointment was obviously or concedely for the purpose ofcreating diversity jurisdiction.' 2 1

In this review, the court clearly 'defined the requisite motiveelement as being a "purpose" to create federal jurisdiction.' 2 2 How-ever, the court first assumed that the administrator was appointedsolely for the purpose of creating federal diversity jurisdiction unlessvalid and substantial reasons supporting the appointment appeared in

I" Id. at 290." 3 1d. at 291.Id. at 296."51 d .'"See text at notes 81-85 supra.' 1 '495 F.2d at 291." 8 Id."3 See id. at 291-95."G Id. at 297. The reasons for the appointment were the administrator's kinshipby marriage and his purported superior business judgment. Id.III See id."5 Id. at 293.

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NOTES

the record.'" The court then evaluated the reasons for the appoint-ment to determine whether those reasons realistically established thatthe administrator sustained more than a nominal relationship to thelitigation.'" Consequently, the court eliminated sentiment and kin-ship,' 2 5 or superior business judgment'" as viable motives under sec-tion 1359. Finally, the court engaged in a substantive review of theadministrator's role in the litigation. It examined the administrator'sduties' 2 7 and found that he had "failed to establish any substantivefacts ... that would give 'substance' to his representation or fix hisstatus in the suit as different from nominal. Without any 'real [or)substantial interest in the outcome of the litigation' he possesses nostake in the litigation. ' "128

The Bishop court's pronouncements were a precise application ofthe section 1359 standard as developed through Kramer and Lester.Under the totality of the circumstances, the motive of the appoint-ment was judged to be "solely for the purpose" of creating federaljurisdiction 1 2 9 and the administrator was judged to have no stake" inthe litigation." However, the court purported to apply a constructionof section 1359 "adopted and applied in Miller.""' As stated earlier, 1 3 2Miller addressed itself only to the issue of whose citizenship was to bedeterminative of diversity and did not consider section 1359. It wouldseem, then, that the court clearly believed that its application of thesection 1359 standard was directed not to the issue of the impropercreation of diversity jurisdiction, but rather to the ultimate determina-tion of the diversity issue itself. 1 3 3 Thus, the section 1359 issue wassubsumed into the section 1332(a) determination.The Fourth Circuit's decision in Bishop thereby embodied a pointof confusion in the development of jurisdictional standards. The courtannounced a decision under the Miller rule, but in fact it decided thejurisdictional question along the conceptual lines of section 1359 stan-dards. This confusion was unnecessary to the specific result in thecase because the administrator would have been disqualified underany independent application of the section 1359 standard. Neverthe-less, this confused blending of standards became significant when thesection 1359 standard of Lester would not have been sufficient in itself

143"4 /d. at 294.12 5 1d, at 293."'Id. at 296.'"Id. at 295-96. The only relationship the administrator had to the action wasthe use of his name. No assets, other than the action, existed in the estate. The adminis-trator made no contribution to the actual prosecution of the action, nor did he take anyactual part in the employment of counsel, Id ."" Id. at 295."A Id. at 296.' 3 " /d, at 295."' Id. at 294.132 See text at notes 86-110 supra.133 495 F.2d at 294-95.

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to dispose of a jurisdictional question over an appointment. This situa-tion was precisely the one presented in Vaughan v. Southern Railway Co.III. THE VAUGHAN APPROACH

It was upon this trilogy of decisions that the Fourth Circuit con-fronted the controversy in Vaughan v. Southern Railway Co. 1 3 4 In lightof these cases, the court easily rejected the argument that Mecom wasdispositive of the decision. 1 3 3 While presenting a new "twist" in itsfacts,' 3 6 Vaughan presented a situation conceptually similar to that ofLester and Bishop. As such, the court was once again called upon toevaluate the effect of the appointment of an administrator of awrongful death action upon the creation of federal diversity jurisdic-tion. Under the Fourth Circuit's trilogy two alternate modes of deci-sion appeared to be available to the court of appeals: the Lester ap-proach or the Bishop-Miller approach. In the former approach, thesection 1359 standard of review formed the primary issue in thejurisdictional controversy. Accordingly, a rule for the determination ofdiversity of citizenship was applied pursuant to the section 1359 find-ing.'" In the latter approach, the rule for the determination of di-versity of citizenship formed the single issue in the jurisdictional con-troversy, and the section 1359 standard for determining the impropercreation of jurisdiction was subsumed into the application of the ruleas a means of eliminating the appointed administrator from the con-sideration of diversity jurisdiction.'" Under either approach, the sec-tion 1359 standard of review consisted of the dual elements of "stake"and "motive," which served to define the improper "nominal party."While the court in Vaughan correctly identified the dual elements ofthe section 1359 standard; 1 3 6 its treatment of that standard signalled asignificant deviation from the approaches of either Lester or Bishop-Miller.The Vaughan court limited itself initially to a purely cursorydisposition of the "stake" element. The court of appeals simply con-cluded: "Vaughan has no stake in the outcome of the controversy.' , 1 4 0However, this conclusion failed to consider the factual circumstancesof the case. Arguably, a significant "stake" may have been made out infavor of Vaughan under North Carolina law.' 4 t For example, a prop-erly appointed administrator must exist for the wrongful death action

134 542 F.2d at 642.133 Id. at 644.133 Unlike Lester and Bishop the situs of the fatal accident was not in the state ofresidence of the decedent and the defendant. Id. at 642.137 See text at notes 81-85 supra.1 " See text at notes 119-34 supra.135 542 F.2d at 644.145 Id .1 " See text at notes 31-35, 68-81 supra.

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NOTES

to be prosecuted,' 4 2 and he is considered the plaintiff in the action.' 4 5Furthermore, the administrator acts as trustee over the proceeds ofthe action and thereby holds legal title over them.'" As such, the ad-ministrator must be regarded as having authority; he is not a merefigurehead.'" The court of appeals failed to account for any of thesecharacterizations of the substantive role of the administrator underNorth Carolina law.Whereas both the Lester and Bishop-Miller approaches entailed acareful review of the administrator's substantive relationship to thecontroversy, the court in Vaughan was satisfied to rely solely upon itssingle conclusory statement.'" This cursory disposition, in effect,suggested an implicit presumption that the administrator had no"stake", yet neither Lester nor Bishop-Miller was predicated on any suchpresumption, whether implicit or explicit. Thus, where the court ofappeals should have undertaken a review of the administrator's sub-stantive role in the controversy, accounting for the assessments ofNorth Carolina law, it chose, in effect, to presume that role to be in-significant.Directing itself to the issue of the "motive" element, the Vaughancourt first recited the section 1359 standard and the truism that viola-tion of' that standard was not dependent upon an evil motive, butrather upon a "purpose of creating apparent diversity of citizen-ship.""' The court of appeals found that the circumstances made thepurity of the beneficiary's motive beyond question. 1 4 " Indeed, validstrategic reasons supported the bringingofthe action in NorthCarolina, and North Carolina law required the appointment. 1 4 " Thus,the "motive" element as developed in both the Lester and the Bishop-Miller approaches was apparently satisfied as the appointment wasmotivated by factors other than simply the creation of federal jurisdic-tion.' 5 However, the Vaughan court went further, and argued that whilethe appointment itself was in no way motivated by a purpose to createfederal jurisdiction, the subsequent attempt to bring the action in fed-eral court after the "innocent" creation of jurisdiction was the "sub-

14 2 BowenV. Constructors Equip. Rental Co., 283 N.C. 395, 415, 196 S.E.2d 789,803 (1973) ,14' ee Homey v. Meredith Swimming Pool Co., 267 N.C. 521, 523, 148 S.E.2d554, 556 (1966).144 /n re Estate of Below, 12 N.C. App. 657, 657-59, 184 S.E.2d 378, 378-81(1971). '" First Union Nat'l Bank of North Carolina v. Hackney, 266 N.C. 17, 22, 145S.E.2d 352, 357 (1965).Ha 542 F.2d at 644. It must be acknowledged, as was the situation in Bishop, thatthere were no other assets in the estate besides the wrongful death action; thus onlylimited duties would be required until an actual recovery. Id. at 642.

1 " 542 F.2d at 644.' id.Id.

'" Id.

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stantial equivalent" of an unexplained improper purpose.'" Whereasthe approaches of both Lester and Bishop-Miller described the only im-propriety under section 1359 as an appointment for the purpose ofcreating federal jurisdiction, the Vaughan court suggested the formula-tion of a new concept. This new concept of impropriety pertained notto the appointment that joined the administrator to the wrongfuldeath action, but rather pertained to the subsequent attempt, by aparty whom the court had presumptively judged to be a "stakeless"administrator, to initiate the action in federal court. Where the courtshould have been satisfied under the preceding trilogy decisions withits evaluation of the motives for the appointment itself, it chose ratherexpansively to equate the actual attempt to initiate the action in fed-eral court, by an administrator who was clearly not appointed for thepurpose of creating diversity jurisdiction, to an improper purpose re-lating to the original appointment.From this evaluation of the administrator and his appointment,the court of appeals insisted upon using the Miller rule to determinediversity of citizenship "we conclude here, as in Miller, that weshould look to the citizenship of the beneficiary in Virginia ratherthan that of the North Carolina administrator ...." 1 5 2 However, in soadopting the Miller rule, without a recognizable application of the ac-cepted standard under section 1359, the court of appeals was in noway entirely consistent with the two alternate approaches for theanalysis of the creation of diversity jurisdiction that were availableunder the previous, conceptually similar decisions of L ester, M iller, andBishop. 1 5 3 Consequently, under the Lester approach, no valid applica-tion of section 1359 was undertaken by the court of appeals in ac-cordance with which any rule for the determination of diversity ofcitizenship could be applied; under the Bishop-Miller approach, novalid application of section 1359, subsumed into the Miller rule for thedetermination of diversity of citizenship, was undertaken by the courtof appeals as a means of eliminating the administrator from the con-sideration of jurisdiction. Simply, the Vaughan court did not apply thesection 1359 standard, as defined in the trilogy decisions, that wasessential under the approaches of either Lester or Bishop-Miller for theapplication of any rule for the determination of diversity of citizen-ship. By its distorted application of section 1359, the Fourth Circuitlooked directly to the citizenship of the beneficiary for the determina-tion of the existence of diversity jurisdiction.' 5 4 In effect, the court ofappeals simply ignored the position of the administrator. As a result,the Vaughan court took the Fourth Circuit one step further from theoriginal thrust of the Mecom and Kramer decisions. Like the Miller and

15 Id.1S3 See text at notes 137-39 supra.134 S ee 542 F.2d at 646 (dissenting opinion). See note 20 supra.

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NOTESBishop courts, the Vaughan court saw the issue of the improper crea-tion of federal diversity jurisdiction as involving one, not two, ques-tions. However, unlike the preceding decisions interpreting section1359, the Vaughan court failed adequately to consider the purpose ofthe appointment and the role of the administrator in the particularcase. By pursuing this one dimensional approach, while ignoring therequisite section 1359 analysis, the Vaughan court has completed a"circular" pattern of development. The decision law proceeded in def-inite increments: the rigid diversity of citizenship rule in Mecom; theinjection and subsequent judicial disregard of section 1359; the excep-tion placed upon the Mecom rule by the stricter section 1359 standardof Kramer; the application of this stricter standard in Lester-McSparran;the initial and obscured framing of a new diversity of citizenship ruleunder the circumstances of Miller; the confusion of Bishop, blendingthe Miller rule and the section 1359 standard; the analysis of Vaughanwhich applied a simple rule, but which ignored the section 1359 stan-dard. Vaughan, thus, represents the final stage of this developmentalcycle whereby a simple rule was adopted and appliedthe citizenshipof the beneficiary would be determinative of federal diversity jurisdic-tion. This rule was spawned by the conceptual conflict between the in- 'flexible application of the Mecom rule and the dictates of section1359.' 5 5 Yet, in seeking to reconcile this conceptual inconsistency, theVaughan court opted for a rule that was as bare and inflexible as thatin Mecom. The court of appeals' efforts refused any application of the'statutory standards; section 1359 was utilized as neither an in-dependent standard of review nor as a subsumed standard within theapplication of the rule. No determination of collusion or improprietywas made; little effort was made to determine the purpose of the ap-pointment and the substantive position of the administrator. In thecontext of an administrator appointed to bring a wrongful death ac-tion, section 1359 was rendered superfluous and meaningless. Thecourt of appeals, in effect, accomplished the gutting of section 1359; abare, inflexible rule now controls.'"Substantial criticism lies against the Vaughan-Miller rule itself.The rule was initially framed in Miller to avoid a constitutional conflictunder the supremacy clause.'" No such constitutional issue was pre-sented in Vaughan and thus the Miller court's reason for abandoningthe Mecom rule and for framing a substitute method of decision equit-ably to resolve its particular jurisdictional controversy did not exist.' 5 8Furthermore, as a conceptual matter, the particular facts of thecase even absent the required joining of the administrator in NorthCarolina presented a situation similar to cases of genuine diversity of

'" See text at notes 63-65 supra.I56 542 F.2d at 646 (dissenting opinion). See note 20 supra."'See text at notes 90-94, 98-101 supra.

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citizenship. Mrs. Swain and Southern Railway were of non-diverse citi-zenship, but Swain brought suit in another state. Thus, the case pre-sented two non-citizens pursuing an action in a separate foreignforum state. Accordingly, the controversy was not one of purely localdimensions and the litigants, like those in an action between citizens ofdifferent states, faced the prospect of being drawn into a foreignforum subject to local attitudes and prejudices. In addition, the de-fendant was a railway corporation, and as such had substantial con-tact, influence, and business within the forum state. Therefore,Southern Railway was even something more than a mere "non-citizen"with no connection to the forum state; it was, in fact, alleged at first tohave been a citizen of North Carolina.' 5 9 Considering these facts, it isat least arguable that the case contained the same necessity for thefederal protection of plaintiffs from the local prejudices of the forumstate that forms the theoretical basis of diversity jurisdiction in more"traditional" fact situations.'"The Vaughan-Miller rule also falls far short of achieving thesimplicity and consistency desired in any jurisdictional rule. Whileproblems may inhere in any process for the determination of diversityjurisdiction by the citizenship of a personal representative,'" theVaughan-Miller rule created more problems than it solved. The federalcourts demand complete diversity among parties.'" Thus, underVaughan-Miller, a case with multiple beneficiaries would apparently bedenied a federal forum if one of the beneficiaries was a citizen of thedefendant's state. Regardless of the citizenship of the administrator,the decedent, or the beneficiaries, complete diversity of citizenshipwould be lacking as long as one of the beneficiaries and one of thedefendants were of non-diverse citizenship. 1 e"Further questions arise as to the future application of the rule.'"Would the rule apply to an executor appointed by the decedent?Would the rule apply when the administrator had powers and dutiesbeyond those of Vaughan such that he would possess an undeniable

138 542 F.2d at 646 (dissenting opinion). See note 20 supra.136 542 F.2d at 645 n.4.160 See text at notes 21-27 supra.161 WRIGHT & MILLER supra note 21,557 at 723.1 ' Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267, 267 (1806).163 The problems inherent in the rule were compounded, in its specific applica-tion to the facts of Vaughan, by the court of appeals' refusal to apply the rule prospec-

tively. 542 F.2d at 644-45. Both Mc5parran and Lester applied their holdings prospec-tively. 402 F.2d at 876-77; 415 F.2d at 1106-08. Those courts departed from the Black-stonian view that judges only discover the law and that any previous inconsistent de-claration was a nullity. 402 F.2d at 876-77; 415 F.2d at 1106. InVaughan, the state stat-ute of limitations barred the subsequent initiation of the dismissed action in the properstate forum; if federal jurisdiction was not granted, the claim could never be brought totrial. 542 F.2d at 645 n.4. Where the court so misdirected precedent and statute to givelegitimacy to its chosen rule, it would have been appropriate for the court to avoid in-justice in the case, which was untarnished by collusion or impropriety, by applying itsdecision prospectively. Id. at 647 (dissenting opinion). See note 20 supra.

"See542 F.2d at 647 n.5 (dissenting opinion). See note 20 supra.996


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NOTES

"stake" in the litigation? If so, how substantial would these powers andduties have to be to define the requisite "stake"? Would creditorspressing preferred claims against an estate be considered beneficiarieswithin the meaning of the rule? How would jurisdiction be de-termined when the decedent's estate was the beneficiary under thewrongful death act? All these questions are posed by the Vaughan-Miller rule and offer areas ripe for complex future litigation. In addi-tion, no language in the opinion appeared to limit the rule to adminis-trators of wrongful death actions. Therefore, the rule would in theoryappear to be applicable to all fiduciaries. As such, the confusion informulating and applying the rule to administrators in wrongful deathactions could . be compounded many times over in all actions broughtby fiduciaries who seek federal diversity jurisdiction.The task of reconciling the conceptual conflicts between thestandards of section 1359 and the traditional rule for the determina-tion of diversity jurisdiction need not lead to such anomalous resultsas those dictated by the Fourth Circuit. For example, as the most via-ble reform in this area the American Law Institute's Study of the Divi-sion of Jurisdiction between Stale and Federal Courts proposed to attributethe citizenship of the decedent to the administrator authorized tobring a wrongful death action for the purpose of determining di-versity of citizenship and federal jurisdiction. 1 6 5 The institute's pro-posal would greatly simplify the determination of diversity jurisdictionin wrongful death actions involving an appointed administrator; thenature and purpose of the appointment would no longer bear uponthe jurisdictional issues. Therefore, application of the section 1359standard, in any form, would not be ignored, but rather would befunctionally unnecessary. While the Institute's proposal would domuch to reform this jurisdictional area, the Vaughan-Miller substitutedid little to promote either the policies of diversity jurisdiction or theefficient administration of justice.

IV. CONCLUSIONHaving confronted the conceptual conflicts presented by the cre-ation of federal diversity jurisdiction through the appointment of an

administrator in a wrongful death action, the Fourth Circuit in'" American Law Institute, Study of the Division of Jurisdiction between State and Fed-eral Courts 1301 (b)(4) (Official Draft 1969); see generally, Jurisdiction of Federal Courts,

46 F.R.D. 141 (1969). The Study originated from a suggestion of Mr. Chief Justice War-ren in a 1959 address to the Institute: "It is essential that we achieve a proper jurisdic-tional balance between the federal and state court systems, assigning to each systemthose cases most appropriate in the light of the basic principles of federalism." jurisdic-tion of Federal Courts, 46 F.R.D. at 141. The Study reflected an eight year effort to makesuch a principled allocation of judicial business. Id. The Lester court acknowledged theexistence of the Institute's proposal, 415 F.2d at 1106, and the Miller court specificallynoted that its rule approached, without achieving, the purpose of the Institute's pro-posal. 456 F.2d at 68.

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BOSTON COLLEGE INDUSTRIAL A ND COMMERCIAL LA W REVIEW

Vaughan v. Southern Railway Co. chose to adopt the newMiller ruleholding that the citizenship of the beneficiary would be controlling forpurposes of diversity jurisdiction. In this process the Vaughan court sodistorted the section 1'359 standard of review as defined by the FourthCircuit's trilogy of diversity jurisdiction decisions that the applicationof the "stake" and "motive" elements of the standard was renderedlargely unrecognizable. This application, in effect, served only to jus-tify an essentially bare application of the Miller rule itself. Therefore,the Fourth Circuit's application of the Miller rule was built upon aquestionable foundation. In addition, the rule itself, in light of its owninherent weaknesses and in comparison to the preferred reform pro-posal, possesses dubious future utility. Thus, in its barest elements theVaughan decision represents the Fourth Circuit's indulgence in thefinal statges of a process of judicial rule-making. However, this pro-cess and the search for an alternate rule of decision in the jurisdic-tional controversy must be said to have ultimately foundered.

THOMAS A. MURPHY, J R .

Constitutional LawTaxpayer's Fifth Amendment PrivilegeAgainst Self-Incrimination Fisher v. United States.' In the consoli-dated case of Fisher v . United S tates, 2 the Supreme Court addressed thequestion of whether a taxpayer's fifth amendment privilege preventsenforcement of a documentary summons directed toward his attorneyfor the production of his accountant's workpapers which had beentransferred to the attorney by the taxpayer. 3 Faced with an investiga-tion by the Internal Revenue Service (I.R.S.) for possible civil andcriminal tax liability, the taxpayers in United States v. Fisher' and UnitedStates v. Kasmir5 obtained certain documents from their accountantsand transferred them to their attorneys!' Shortly after the transfer,the I.R.S. served a summons on each of the attorneys to compel theirproduction of the transferred documents.' When the attorneys re-

' 425 U.S. 391 (1976). Two cases, Fisher v. United States, 500 F.2d 683 (3rd Cir.1974), and United States v. Kasmir, 499 F.2d 444 (5th Cir. 1974), were consolidated be-cause of the identity of issues and the conflict between the courts of appeals' decisions.2 42 5 U.S. 391 (1976).3 1d. at 394.352 F. Supp. 731 (E.D. Pa. 1972), affd, 500 F.2d 683 (3rd Cir. 1974), affd, subnom. Fisher v. United States, 42 5 U.S. 391 (1 976).5 499 F.2d 444 (5th Cir. 1974), rev'd 425 U.S. 391 (1976). The district court opin-ion is unpublished.425 U.S. at 394. The documents transferred in Kasmir consisted of the accoun-tant's workpapers, copies of correspondence between the accountant and the taxpayer,and copies of the taxpayer's tax returns for three years. In Fisher, the taxpayers trans-

ferred their accountant's analyses of their income and expenses, based upon informa-tion copied from the taxpayer's checks and deposit receipts. Id .26 U.S.C. 7602 (1970) provides authority to summon books and records inthe following language:For the purpose of ascertaining the correctness of any return, mak-998

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Federal Courts -- Diversity Jurisdiction